Date: Thu, 2 Nov 2006 10:57:19 -0800 (PST)
Subject: [KCUTS] B.C. health spending is neither out of control nor headed for
From: meadow@netidea.com
B.C. health spending is neither out of control nor headed for crisis
F.Y.I.
www.TheTyee.ca
[Editor's note: If ever there was a Tyee story to print out it's this one,
complete with a chart and three tables allowing you to follow Will
McMartin's math as he demonstrates that B.C. health spending is neither
out of control nor headed for crisis.]
It's not easy to imagine Carole Taylor wearing a stovepipe hat, but
there's no doubt
that B.C.'s finance minister has taken to heart Abraham Lincoln's famous
observation
that "you can fool some of the people all of the time..."
Appointed to the finance portfolio a bare 15 months ago, Taylor has proved
that she
can fool many British Columbians, and especially members of B.C.'s pliant,
credulous
news media, whenever she puts her mind to it.
Last winter, Taylor bluffed the news media and public-sector unions into
believing
that surplus monies in the provincial treasury would automatically
disappear -- gone
to debt repayment, poof! -- at the end of the fiscal year because the
province had
adopted generally accepted accounting principles (GAAP).
It wasn't true, as I explained here
<http://thetyee.ca/Views/2006/03/20/TaylorFudge/>. Still, the fib was
believed by
journalists who reported it as fact, and by union leaders who feared the
loss of up
to $1 billion in bonuses dangled by Taylor as an inducement to the signing
of new
collective agreements. The unions quickly capitulated before the finance
minister's
make-believe deadline.
A few months later, with the release of the 2005-06 public accounts, Taylor's
legerdemain was revealed as B.C. ended the fiscal year (and began the current
period) with a whopping $3.9 billion in cash and short-term investments. Her
assertion that GAAP required surplus cash would vanish -- going to
debt-holders --
proved to be just so much hot air.
Teflon Taylor
<http://thetyee.ca/adserver/adclick.php?bannerid=192&zoneid=16&source=&dest=http%3A%2F%2Fthetyee.ca%2FSeries%2F2006%2F08%2F10%2FRoughWeather%2F>
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She was at it again last week, at a news conference to release the
government's
first quarterly report for the current fiscal period. With a straight
face, Taylor
warned that exploding health expenditures will soon threaten the viability
of other
government outlays.
In a decade, she claimed, health spending could consume nearly
three-quarters of
Victoria's annual budget. With education taking up the remaining quarter,
nothing
would be left to fund children's services, welfare, transportation, the
police, the
courts, environmental protection, debt servicing or other valued programs.
"You can see what I'm trying to impress upon everyone," Taylor told the
assembled
scribes, referring to a chart that showed health costs rising from 41.6
per cent of
last year's budget, to 71.3 percent in 2017-18. "This is an issue that we
all have
to get our heads around."
On top of that, so as to bring a sense of urgency to the looming
catastrophe, B.C.'s
finance minister also disclosed that the province's six health authorities
recently
requested an additional $1 billion-plus over the next three years to deal
with
unidentified cost "pressures."
Why, money is just flying out of the provincial treasury to pay for
out-of-control
health care. Action is needed, now!
Knock 'em dead
In show-business parlance, it was a boffo performance. Predictably, B.C.'s
goggle-eyed news media quickly succumbed to the charms of our Gucci-favouring
finance minister.
Not atypical was Gary Mason, a Vancouver columnist with The Globe and
Mail, who used
such terms as "ever-gathering storm," "seemingly out of control," and
"shocking" to
describe Taylor's dire forecast. "[T]he growing health-care crisis is
real," Mason
insisted breathlessly, "and people need to wake up to it in a hurry."
Golly. It's a good thing that premier Gordon Campbell, who last spring
fled the
legislative assembly to tour European health facilities with his
brother-in-law, has
decided to cancel the legislature's scheduled fall sitting to travel
around B.C. and
have a "conversation" about health care with British Columbians.
But there is just one, tiny problem with Taylor's bleak forecast, and the
underlying
premise of Campbell's desire to introduce dramatic reforms to B.C.'s
public health
system.
There is no fiscal crisis.
Reports published by the finance ministry -- readily available to the
public, and
the news media, too -- show that provincial expenditures on health have not
exploded, nor are they expected to do so in the foreseeable future.
Taylor's warning
of a looming fiscal crisis caused by skyrocketing health spending is
contradicted
and refuted by her own department.
Real numbers
The Financial and Economic Review is produced annually by the finance
ministry, and
each edition provides a wealth of information on provincial government
programs,
Crown corporations, fiscal and economic topics, demographic trends, and
much, much
more. First published in 1940, the Review has been available online since
2002, and
the latest volume (the 66th) was released last month. It can be accessed here
<http://www.fin.gov.bc.ca/tbs/F&Ereview06.pdf>.
The best way to verify Taylor's assertions is to examine Victoria's health
expenditures as a proportion of the B.C. economy. This year's Review has a
table
that shows British Columbia's annual gross domestic product (GDP) at
market prices
over the past quarter-century (on page 27), and another entitled
"Historical Expense
by Function: Consolidated Revenue Fund," with the province's outlays by main
categories of expenditure over the past two decades (on page 91).
It is easy to compare data from the two tables, which has been transposed
to Table
1, presented at the bottom of this article, and can be seen graphically as
the
broken line at the bottom of the chart at the top of this column.
Two decades ago, in 1984, B.C.'s GDP stood at $49.8 billion. In the
comparable
fiscal period (from April 1984 to March 1985), CRF outlays on health
totalled just
over $3.0 billion, or 6.1 per cent of GDP.
Last year, in 2005, provincial GDP surpassed $168.0 billion, while health
expenditures for the 2005-06 fiscal year hit $11.7 billion. That was
slightly under
7.0 per cent of GDP.
As a proportion of B.C.'s economy over the past two decades-plus, health
expenditures have ranged from a low of 5.8 per cent (in 1988-89) to a high
of 7.5
per cent (in 2002-03). The annual average was 6.6 per cent.
It is obvious that the growth of health spending as a share of the provincial
economy since the early 1980s has been very modest. (Most, if not all, of the
increase can be attributed to our ageing population, as seniors were 10.7
per cent
of the total in 1981, and is estimated by Stats BC at 14.1 per cent this
year.)
No explosion
Now, consider data from Taylor's first quarterly report
<http://www.fin.gov.bc.ca/qrt-rpt/qr06/Q1_06.pdf>. On page 46 is a table
that shows
the finance department's projections for B.C.'s GDP at market prices until
2010. And
on page 62 is another table entitled "Expenses by Function: 2006-07 -
2008-09,"
which provides an update on planned government expenditures. (It is
important to
note that the latter table is not for the CRF alone, but is a GAAP
presentation,
which slightly boosts health outlays.)
By comparing planned health spending with forecasted GDP we can see that the
government's health expenditures are expected to represent 7.3 per cent of
the
provincial economy in the current fiscal year, and 7.1 per cent and 6.9
per cent in
the two subsequent years. That is, while B.C.'s health spending has
averaged 6.6 per
cent of GDP per year since the early 1980s, the finance department
estimates it will
be 6.9 per cent in the fiscal year 2008-09.
So much for Taylor's assertions that health expenditures are out of control.
As the chart accompanying this column clearly shows, B.C.'s annual health
expenditures as a proportion of the provincial economy have been remarkably
consistent for the past quarter-century. There is no evidence of an
explosion. Nor
does the latest finance department forecast suggest that one is expected
in the near
future.
The fine print
Taylor's claim that health consumes a rising proportion of Victoria's
annual budget,
however, is more accurate. Looking again at page 91 of the most-recent
Review, we
can compare health expenditures as a proportion of annual CRF spending
over the past
two decades-plus. (See Table 2 below.) In 1984-85, health outlays
represented 31.0
per cent of the CRF; by 2005-06, that figure had climbed to 41.6 per cent.
Again looking at the accompanying chart, the solid line at the top shows
that health
spending has consumed a steadily increasing portion of the provincial
budget in
recent years.
This presents a conundrum of sorts. How is it that health spending as a
proportion
of total government expenditures is rising, while at the same time it remains
relatively constant as a share of the B.C. economy?
The surprising answer is revealed by the dotted line in the middle of the
chart atop
this column: Victoria's budgeted expenditures, as a proportion of
provincial GDP,
have been slowly shrinking. In 1984, for example, CRF spending was 19.7
per cent of
GDP; but in the current fiscal year, the comparable figure is just 15.9
cent. (You
can find all the supporting numbers in Table 3, below.)
Health spending, then, is increasing as a proportion of the government's
annual
budget, only because the budget itself is growing smaller in relation to
the B.C.
economy!
Accounting is what changed
This raises a final question: how or why have B.C.'s budgets declined in
relation to
the provincial economy? There are several answers.
One is that government expenditures on welfare and other social services grew
significantly during the severe economic recession of the early 1980s, and
remained
at unusually high levels for a decade thereafter. As a result, the fiscal
budget
grew in comparison to the economy, but in recent years has declined as
welfare rolls
have shrunk.
But perhaps the most interesting reason is that more than a few of the
province's
finance ministers in recent decades -- we've had 12 since 1980, all of
whom were
bedevilled by a seemingly never-ending string of budgetary deficits --
resorted to
fiscal legerdemain, chicanery and deceit in trying to "balance the books."
There were all kinds of attempts made to eradicate the deficit: raising
taxes and
cutting spending being just two of the most obvious. But one of the
most-favoured
means was the removal of spending items from the annual budget. Put
another way,
instead of slashing expenditures, some finance ministers simply stopped
counting
them.
During the 1990s, for example, the New Democratic Party government shifted
highway
construction costs to the B.C. Transportation Financing Authority, and
transferred
B.C. Transit's Lower Mainland operations to a regional authority. The
Campbell
Liberals continued the practice, notably by transforming the B.C. Ferry
Corporation
from a Crown corporation into an "off-the-books" entity.
Best of all, the Campbell Liberals adopted GAAP, which excludes nearly all
capital
expenditures from the fiscal budget, because construction or purchase
costs are now
spread over the useful life of the assets acquired. To wit: Victoria will
spend
nearly $5 billion for new capital assets this year, but a mere fraction of
that
amount will be counted as a budgetary expense in the current fiscal period.
Consider that transportation spending, which between the Second World War
and the
early 1980s was 10-25 per cent of B.C.'s annual budgets, now represents a
mere 3 per
cent of budgeted expenditures.
Not surprisingly, as certain of spending items -- welfare, capital projects,
transportation -- declined or were removed from the budget, the remaining
expenditures grew as a proportion of the total budget. Foremost among
these, of
course, was health.
No crisis
It's painfully clear. Health spending has not exploded, nor is it
threatening to do
so. There is no looming fiscal crisis.
Expenditures for health have grown as a proportion of Victoria's outlays
simply
because the fiscal budget has been slimmed down through accounting
changes, the
off-loading of certain items of expenditure, and a reduction in welfare
caseloads.
Any one with a calculator -- even a member of the news media -- could
figure it out
by thumbing through readily-available finance ministry documents. Few if
any have
done so, or may be expected to make the attempt.
Soon, Gordon Campbell will begin a "conversation" on health care with British
Columbians, and Carole Taylor will buttress the premier's call for
dramatic reforms
by claiming that runaway health costs have created a looming fiscal crisis.
Some people -- and many reporters -- will be fooled.
The rest of us can amuse ourselves by picturing her in a stovepipe hat.
Table 1:
Health expenditures in the Consolidated Revenue Fund as % of B.C. Gross
Domestic
Product (at market prices)
Fiscal Year Gross Domestic Product ($000,000) CRF Health
Expenditures
($000,000) CRF Health Expenditures as % of GDP
1984-85 49,840 3,042 6.1
1985-86 53,540 3,161 5.9
1986-87 56,547 3,446 6.1
1987-88 62,515 3,684 5.9
1988-89 69,408 4,012 5.8
1989-90 75,582 4,502 6.0
1990-91 79,350 5,028 6.3
1991-92 81,849 5,617 6.9
1992-93 87,242 6,003 6.9
1993-94 94,077 6,287 6.9
1994-95 100,512 6,584 6.6
1995-96 105,670 6,778 6.4
1996-97 108,865 7,038 6.5
1997-98 114,383 7,224 6.3
1998-99 115,641 7,478 6.5
1999-00 120,921 8,019 6.6
2000-01 131,333 8,754 6.7
2001-02 133,514 9,888 7.4
2002-03 138,252 10,410 7.5
2003-04 145,948 10,686 7.3
2004-05 157,241 10,833 6.9
2005-06 168,011 11,717 7.0
(SOURCE: 2006 British Columbia Financial and Economic Review, pp. 27 and 91.)
Table 2:
Health expenditures as % of the Consolidated Revenue Fund
Fiscal Year Total CRF Expenditures ($000,000) CRF Health
Expenditures
($000,000) CRF Health Expenditures as % of CRF
1984-85 9,801 3,042 31.0
1985-86 10,127 3,161 31.2
1986-87 10,624 3,446 32.4
1987-88 11,055 3,684 33.3
1988-89 11,834 4,012 33.9
1989-90 13,200 4,502 34.1
1990-91 15,010 5,028 33.5
1991-92 17,101 5,617 32.8
1992-93 17,858 6,003 33.6
1993-94 18,833 6,287 33.4
1994-95 19,953 6,584 33.0
1995-96 20,054 6,778 33.8
1996-97 20,241 7,038 34.8
1997-98 20,135 7,224 35.9
1998-99 20,528 7,478 36.4
1999-00 22,161 8,019 36.2
2000-01 22,444 8,754 39.0
2001-02 24,669 9,888 40.1
2002-03 24,941 10,410 41.7
2003-04 25,122 10,686 41.0
2004-05 26,061 10,833 41.6
2005-06 26,690* 11,717 43.9
* does not include $710 million in wage settlement incentive payments.
(SOURCE: 2006 British Columbia Financial and Economic Review, p. 91.)
Table 3:
Consolidated Revenue Fund expenditures as % of B.C. Gross Domestic Product
(at
market prices)
Fiscal Year B.C.'s Gross Domestic Product ($000,000) CRF
Expenditures
($000,000) CRF Expenditures as % of GDP
1984-85 49,840 9,801 19.7
1985-86 53,540 10,127 18.9
1986-87 56,547 10,624 18.8
1987-88 62,515 11,055 17.7
1988-89 69,408 11,834 17.0
1989-90 75,582 13,200 17.5
1990-91 79,350 15,010 18.9
1991-92 81,849 17,101 20.9
1992-93 87,242 17,858 20.5
1993-94 94,077 18,833 20.0
1994-95 100,512 19,953 19.9
1995-96 105,670 20,054 19.0
1996-97 108,865 20,241 18.6
1997-98 114,383 20,135 17.6
1998-99 115,641 20,528 17.8
1999-00 120,921 22,161 18.3
2000-01 131,333 22,444 17.1
2001-02 133,514 24,669 18.5
2002-03 138,252 24,941 18.0
2003-04 145,948 25,122 17.2
2004-05 157,241 26,061 16.6
2005-06 168,011 26,690* 15.9
* does not include $710 million in wage settlement incentive payments.
(SOURCE: 2006 British Columbia Financial and Economic Review, pp. 27 and 91.)
Veteran political consultant and analyst Will McMartin is a regular
columnist for
The Tyee.
--